Prepare journal entry to record issuance of the bonds.

Question

Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, Year 1, Smiley issued $25,100,000 of five-year, 5% bonds at a market (effective) interest rate of 3%, receiving cash of $27,414,835. Interest is payable semiannually on April 1 and October 1. Required: a. Journalize the entries to record the following. Refer to the Chart of Accounts for exact wording of account titles. 1. Issuance of bonds on April 1, Year 1. 2. First interest payment on October 1, Year 1, and amortization of bond premium for six months, using the straight-line method. (Round to the nearest dollar.) b. Explain why the company was able to issue the bonds for $27,414,835 rather than for the face amount of $25,100,000. Chart of Accounts CHART OF ACCOUNTS Smiley Corporation General Ledger ASSETS 110 Cash 111 Petty Cash 121 Accounts Receivable 122 Allowance for Doubtful Accounts 126 Interest Receivable 127 Notes…

Answer 1

Question

Chapter 14, Problem 7E

(a)

To determine

Prepare journal entry to record issuance of the bonds.

b.

To determine

Prepare journal entry to record first interest payment and amortization of premium on bonds.

c.

To determine

Explain the reason why the company was able to issue the bonds for $20,811,010 rather than $20,000,000.

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Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, Year 1, Smiley issued $25,100,000 of five-year, 5% bonds at a market (effective) interest rate of 3%, receiving cash of $27,414,835. Interest is payable semiannually on April 1 and October 1. Required: a. Journalize the entries to record the following. Refer to the Chart of Accounts for exact wording of account titles. 1. Issuance of bonds on April 1, Year 1. 2. First interest payment on October 1, Year 1, and amortization of bond premium for six months, using the straight-line method. (Round to the nearest dollar.) b. Explain why the company was able to issue the bonds for $27,414,835 rather than for the face amount of $25,100,000. Chart of Accounts CHART OF ACCOUNTS Smiley Corporation General Ledger ASSETS 110 Cash 111 Petty Cash 121 Accounts Receivable 122 Allowance for Doubtful Accounts 126 Interest Receivable 127 Notes…

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Shunda Corporation wholesales parts to appliance manufacturers. On January 1, Year 1,Shunda Corporation issued $22,000,000 of five-year, 9% bonds at a market (effective) interest rate of 7%, receiving cash of $23,829,684. Interest is payable semiannually. Shunda Corporation’s fiscal year begins on January 1. The company uses the interest method.a. Journalize the entries to record the following:1. Sale of the bonds.2. First semiannual interest payment, including amortization of premium. Round to the nearest dollar.3. Second semiannual interest payment, including amortization of premium. Round to the nearest dollar.b. Determine the bond interest expense for the first year.c. Explain why the company was able to issue the bonds for $23,829,684 rather than for the face amount of $22,000,000.